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From 2008 to 2010, the US Government offered a tax credit to consumers who bought a home for the first time. The tax credit – and the rules surrounding repayment – varied from year to year. One of the requirements for the tax credit that remained the same, however, was that homeowners must remain in their homes for a certain period. If you lost your home to foreclosure after claiming a first-time home buyer tax credit, the government may require you to repay all or a portion of the credit you received.

2008 Tax Credit

The federal government issued the first first-time home buyer's tax credit in 2008 for up to $7,500. This credit functioned more like a loan than an actual tax credit. The government required consumers to repay the credit over a 15-year period. If your home changed hands at any point during that 15 years, you were responsible for paying the remaining balance of the tax credit on your next tax return.

The repayment guidelines include a provision that the repayment amount cannot exceed the amount of profit the homeowner makes from the home sale. Because most foreclosures do not bring a profit, it's highly unlikely you'll need to repay the 2008 first-time home buyer tax credit after foreclosure.

Repayment Exceptions

When a bank forecloses on your home, it initially attempts to sell the property at a foreclosure auction. If the property does not sell, the bank will sell it via a real estate agent. Foreclosures do not generally sell for a profit. In some sought-after areas, however, it is possible to make a profit from a foreclosure sale. If your foreclosed home brings a profit and you claimed the 2008 first-time home buyer tax credit, you must repay the lesser of either the tax credit or the profit from the foreclosure sale.

2009 Tax Credit

Unlike the 2008 tax credit, the $8,000 first-time home buyer's credit offered in 2009 did not carry a repayment requirement. If your home stopped being your main residence at any point within 36 months from the date you claimed the credit, you must repay the tax credit in full. The fact that you lost your home in a foreclosure does not exempt you from this requirement. Fortunately, like the earlier tax credit, the rules surrounding the 2009 tax credit do not require you to repay the credit if you did not receive a profit from the home's sale.

A $6,500 first-time home buyer's tax credit was also available for consumers who bought their first home between Nov. 7, 2009 and April 30, 2010. The rules for repayment of the 2010 tax credit are the same as those for the 2009 tax credit.

IRS Form 5045

When you file your taxes for the first time after the foreclosure, you must fill out IRS Form 5045 and include it with your tax return. Form 5045 does not differentiate between former homeowners who lost their homes via foreclosure and those who sold their homes. If you did not receive a profit from the foreclosure sale, place a check mark in box “b” of Part III, question 13. You do not need to fill out the remainder of the form. If you did receive a profit from the sale, complete the worksheet to calculate the amount you owe.

About the Author

Ciele Edwards holds a Bachelor of Arts in English and has been a consumer advocate and credit specialist for more than 10 years. She currently works in the real-estate industry as a consumer credit and debt specialist. Edwards has experience working with collections, liens, judgments, bankruptcies, loans and credit law.

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Edwards, Ciele. "Do I Have to Pay Back the First Time Homebuyers Credit If My Home Is Foreclosed?" Home Guides | SF Gate, http://homeguides.sfgate.com/pay-back-first-time-homebuyers-credit-home-foreclosed-56084.html. Accessed 25 May 2019.

Edwards, Ciele. (n.d.). Do I Have to Pay Back the First Time Homebuyers Credit If My Home Is Foreclosed? Home Guides | SF Gate. Retrieved from http://homeguides.sfgate.com/pay-back-first-time-homebuyers-credit-home-foreclosed-56084.html

Edwards, Ciele. "Do I Have to Pay Back the First Time Homebuyers Credit If My Home Is Foreclosed?" accessed May 25, 2019. http://homeguides.sfgate.com/pay-back-first-time-homebuyers-credit-home-foreclosed-56084.html

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